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Falling Off The Patent Cliff: AZ, Sanofi Post Disappointing Results

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Two pharma giants today reported disappointing third-quarter results they blamed on loss of patent protection for blockbusters, though Sanofi revised its 2012 forecast with a slightly better full-year projection, while AstraZeneca announced the launch of a strategic review.

AstraZeneca finished Q3 with a 49% drop in operating profit, to nearly $2.2 billion from about $4.3 billion a year ago, following a 19% drop in sales, to almost $6.7 billion from $8.2 billion in the third quarter of 2011. At constant exchange rates reflecting the strong dollar, AZ profits fell 47% and sales, by 15%.

On his first full day in office as CEO, Pascal Soriot suspended AZ’s share buyback program, and cautioned that the company has begun a review of operations that he anticipated would be completed enough by the end of January for the company to share “initial thinking,” followed in coming weeks by further details.

“My priority is to restore the company to growth and scientific leadership,” Soriot said in a statement accompanying the results.

In a conference call with reporters, Soriot acknowledged AZ will need to replenish a pipeline depleted due to patent-cliff loss of protection as well as disappointing clinical results in recent years.

AZ attributed its sales losses to the loss of patent protection for several key brands, particularly the antischizophrenia drug Seroquel IR, whose sales plummeted 83%, to $169 million in Q3 compared with $1.034 billion in the third quarter of 2011. Seroquel accounted for a 19% drop in U.S. revenues, which otherwise rose by nearly 6%, including $44 million from AZ’s share of the Amylin diabetes portfolio acquired in August.

Sanofi finished the third quarter with a 7.4% slide in net income from a year earlier, to €2.2 billion ($2.88 billion), despite a 3.3% increase in net sales, to €9.04 billion ($11.73 billion). At constant exchange rates, Sanofi’s net income fell 15.9%, while its net sales fell by 3.1%.

“The loss of exclusivity for Eloxatin® in August in the U.S. marks the final step in the genericization of our legacy blockbusters,” Sanofi CEO Christopher A. Viehbacher said in a statement accompanying the quarterly results.

Sanofi calculated net sales lost in the quarter to generic competition at €448 million ($581.36 million), primarily due to generic competition to Eloxatin and Lovenox in the U.S., and to a lesser extent, Aprovel®, Plavix®, and Taxotere® in the European Union.

Net sales of Eloxatin, used in combination with other medicines to treat advanced colon or rectal cancer, fell 74.7% or 62.9% at constant exchange rates reflecting the strength of the U.S. dollar, the Chinese Yuan, and the Japanese Yen compared with the Euro, to €129 million ($167.34 million). Eloxatin sales plunged to €72 million ($93.37 million) while Lovenox net sales fell by 14% at CER, to €437 million ($566.8 million).

Among drugs facing generic competition in the EU, Taxotere sales nosedived 36% at constant exchange rates to €129 million ($167.34 million), while Plavix saw its sales shrink by 10.4% at CER, to €505 million ($654.97 million), and Aprovel, down 8.3% at CER to €298 million (almost $386.5 million).

Sanofi is counting on future growth to come from a combination of sales in emerging markets, as well as existing drugs for diabetes, vaccines, animal health, and “New Genzyme” biologics drugs; plus new drugs from its pipeline. Emerging markets sales zoomed 31.5% during Q3, to €204 million ($264.55 million). And Sanofi’s diabetes business climbed 17.5% to €1.486 billion ($1.927 billion), driven by a 22% jump in sales of Lantus, which rose to €800 million ($1.04 billion).

During Q3, Sanofi launched to market in the U.S. a new bowel cancer drug Zaltrap, as well as a multiple sclerosis pill Aubagio, while winning FDA approval for the compact epinephrine auto-injector Auvi-QTM for anaphylaxis.

“The solid performance of our growth platforms, which account for over 70% of sales, coupled with tight cost control, allowed us to limit the impact of the patent cliff on business [earnings per share] this quarter,”Viehbacher said in his statement.

That also explains why Sanofi offered a slightly rosier outlook for full-year 2012 earnings, predicting a 12% decrease compared with the previous forecast of a 15% decline.

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